A new bill signed into law by New York Gov. David Paterson today will allow the state to insure loans that refinance “overleveraged” apartment buildings, even though there are questions in the market over landlords pricing rentals unrealistically, thereby creating an unnecessarily high vacancy rate. The State of New York Mortgage Agency (SONYMA) will be able to insure refinanced mortgages of up to $150m for properties originally financed between 2004 and 2008. SONYMA will use its standard underwriting criteria, and its board of directors must approve each project. A spokesperson for SONYMA said no specific capacity has been set aside for the projects affected by the new law, and investors cannot buy into the insurance. Its Mortgage Insurance Fund already insured mortgages of several unsold condo buildings that have converted into rental apartments. In April, the national apartment vacancy rate reached 8%, the highest level recorded by Reis Inc., a New York research firm, according to the Wall Street Journal. While the latest figures for the multifamily sector are improving, Barclays Capital analysts are still hesitant to call a recovery. A recent report by BarCap showed the percentage of units rented in newly constructed buildings is still low at 50%, compared to 65% in 2005 and 2006. “One possible explanation for this could be that landlords are attempting to charge a premium for newly finished apartments that renters are unwilling to pay,” according to the report. Many recently built multifamily condos remain unoccupied in New York as developers have run out of money. By refinancing these properties, supporters of the SONYMA program believe unoccupied condos can be converted into affordable apartments. Insurance from the state could reduce the cost of refinancing and encourage lenders to do them. BarCap and other analysts have attempted to temper fears from investors that a government-backed refinancing wave could boost prepayments to new highs in the securitization market. But such a policy shift, they said would require a reversal from recent actions and would put up too many logistical roadblocks, according to analysts. But last year, the SONYMA single-family mortgage program lowered its presale requirement for potential homeowners looking to refinance the purchase of condos in “target” areas. Under the new policy, only 40% of units in a condo development must now be sold for a single one to become eligible for a SONYMA mortgage. Write to Jon Prior.